Perspective: Morning Commentary for March 14

By: Arlan Suderman, Chief Commodities Economist

Tue, 14 Mar 2023, 13:16

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

March 14 – The waters calmed a bit overnight ahead of this morning’s inflation data release, allowing stock futures to bounce modestly in a nervous market environment following the weekend’s bank failures. The VIX traded either side of 26 overnight, dropping to 24 this morning, while the dollar index firmed to trade near 103.6. Yields on 10-year Treasuries are trading near 3.61% in what was an active night of trading, while yields on 2-year Treasuries are trading near 4.27%, after falling to a six-month low 3.83% overnight. Crude oil prices are 2% lower this morning, as they hover just above critical chart support, while the grain and oilseed market was mostly lower as well. The broader commodity markets continue to face headwinds from economic uncertainties on Wall Street that have many traders worried about longer-term demand prospects.

The consumer price index data came in pretty much as expected this morning, allowing Wall Street to give a big sigh of relief. Inflation is still a problem, but at least there weren’t any more surprises. The CPI rose 0.4% month-on-month in February, matching analyst expectations and down from 0.5% the previous month. The headline CPI rose 6.0% year-on-year in February, again matching analyst expectations, but down from 6.4% the previous month. The core CPI that excludes the more volatile food and energy prices rose 0.5% month-on-month, up from analyst expectations that it would remain unchanged at 0.4%. The Core CPI was up 5.5% year-on-year in February, matching analyst expectations, and down from 5.6% the previous month. Yes, Wall Street gave a sigh of relief that there were no big surprises in this morning’s data, but that doesn’t take away from the fact that core inflation remains a significant problem, and a slowdown by the Fed due to this past weekend’s bank failures could allow that inflation to become even more deeply engrained into our economy.

The devil is in the details, as the saying goes. Breaking down this morning’s CPI numbers tells quite a story. The headline numbers were as expected and relatively unchanged from the previous month, but that’s largely because of big month-on-month declines in energy prices, used vehicles and medical care services. Natural gas prices fell 8.0% month-on-month, while fuel oil fell 7.9%. Used car and truck prices fell 2.8% month-on-month, while medical care services fell 0.7%. However, shelter rose 0.8% month-on-month, up from 0.7% the previous month, while services less energy services rose 0.6%, up from 0.5% the previous month. This has been where inflation has largely been grounded in recent months – in shelter and in labor-intensive services. It was a problem that shook Wall Street a month ago, and today’s data indicates that little has changed over the past month. Year-on-year inflation rates for shelter and for services less energy are at 8.1% and 7.3% respectively.

The Federal Reserve has a problem – it’s between a rock and a hard place, as we say in America. A part of the problem with the banks that went under over the weekend was that they reportedly had ownership of a significant volume of long-dated Treasuries that were losing value as interest rates went higher. That contributed to their assets falling relative to their liabilities, among other issues. As such, it created an opportunity for critics to blame the Federal Reserve’s rate hikes for the failures, although other significant factors were involved as well. Nonetheless, Treasury yields plummeted in a rush to safety in the markets, but also on expectations that the Federal Reserve will slow its rate hikes, and even become somewhat aggressive with rate cuts by the last half of this year. There’s even talk that the Fed may reduce the rate at which it shrinks its balance sheets. One can make a valid argument for doing the above, but one must also recognize the law of unintended consequences if it does – inflation can get a tighter grip on the economy and be even more difficult to control, requiring even more pain down the road to do so. The Federal Reserve needs to walk a fine line between these two risks when it meets next week.

Russia agreed to extend the grain initiative that allows exports from three approved Ukrainian ports, but only for another 60 days. Ukraine says that the original agreement states that extensions shall be for 120 days, and it assumes that to be the case. Turkey and the United Nations continue to negotiate with both parties to bring them to a consensus, with the end of the current agreement coming this weekend. Corn and wheat traders will be following these developments closely. In addition, USDA reported this morning that exporters sold 24.1 million bushels of old-crop corn to China over the past 24 hours, contributing to the recent climb in demand for U.S. corn that I outlined in yesterday’s midday commentary. The recent price break is buying demand for U.S. corn, which is favorably priced on the world market, with the Argentine crop rapidly shrinking due to drought.

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Mike CastleFri, 07 Aug 2026, 13:26

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